To coax tissue stem cells (SCs) towards specific cell fates for replacement therapies, we need to understand how SCs are regulated to proliferate and differentiate into their progeny lineages. These SC fate decisions are thought to be coordinated by signals from specialized cells in their immediate microenvironment, or niche. Hair follicle (HF) morphogenesis is an excellent model system for SC regulation by niche signals, since the developmental steps and timing are well-defined. However, as with SC niches in most other organs, the specific niche signals that regulate skin SC fates are largely unknown, due to the long-standing lack of genetic tools to isolate, characterize and target the niche cells. Specialized dermal papilla (DP) precursor cells are thought to interact as niche cells with SCs in incipient hair placodes to form HFs. To date, however, no direct proof exists that DP precursors are required for HF formation nor do we know the nature of the elusive fate-specifying signals, largely due to the lack of modern genetic methods for targeting these cells for isolation and gene/cell ablation. In our ongoing effort and new preliminary data, we have developed much-needed genetic strategies to isolate, characterize and target embryonic DP niche cells for gene/cell ablation during the earliest steps of HF formation. In this proposal, we will utilize genetic drivers of DP genes Tbx18 and Sox2 to test the hypothesis that DP cells establish a niche for HF stem cells. We will utilize our newly established Tbx18-driven inducible Cre line as the first genetic driver for cytotoxic cell ablation of DP precursors and determine their absolute requirement for HF formation. Conversely, we will isolate DP precursors from Tbx18- and Sox2-driven GFP lines and directly determine in hair induction assays whether these cells are sufficient to induce HF formation in comparison to unspecialized fibroblasts. We will then employ inducible Cre-mediated single-cell fate mapping of individual DP precursor cells to define their lineage relationships with mature DPs and dermal sheaths and to investigate the potential hierarchy and heterogeneity within DPs. We will further determine the specific role of Wnt signaling in the embryonic niche by ?-catenin gene ablation. We will finally systematically identify novel DP niche signals and functionally investigate their role in vivo by DP precursor-specific gene deletion. This work will identify essential genes in the embryonic DP niche and its signal(s) that activate SCs during HF formation. The application of these studies lies in their potential to improve regenerative therapies meant to restore fully functional skin including HFs for burn victims or patients with debilitating skin diseases, a technology which currently is lacking due to our limited understanding of essential supporting niche signals. These findings will also have global relevance for regenerative therapies in other organ systems, where SC niches operate to maintain tissue homeostasis.